Author Topic: Global index tracker is so high! Do I just keep putting my money into it anyway?  (Read 6274 times)

FireSeekerLondon

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Hello all,

I'm generally not one to worry about what the stock market is doing, but lately I've looked at the soaring price of the Vanguard Global Index ETF I religiously put my money into every month (in a SIPP) with equal amounts of elation and alarm.  My dilemma is, should I switch off from prices/news and just keep blindly chucking the money in there, in the hope that in the very long term it won't matter.  Or, should I hedge my bets and keep a little cash back in case of a dip/the promised 2020 recession.   

Has anyone else had these same thoughts, and if so, what conclusion did you come to?

Feel free to tell me to STOP TRYING TO TIME THE MARKET!  I don't normally even think about it.

FSL

never give up

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Hello. Sorry to answer a question with a load of questions.

1. What is your asset allocation? It may not be right if you are jittery.

2. How far away are you from achieving FI, or how many years until youíll be accessing the SIPP?

I would definitely recommend switching off from the news. They never comment when the market goes up do they?

Oh yeah and stop trying to time the market :-)

FireSeekerLondon

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Hi Never give up, and thanks for answering.

So, to answer your questions:

1) I have 100% equities right now, which I'm completely ok with.  I intend to keep it that way until I'm FI. 
2) I could, and probably will, access the SIPP in 15 years' time.

Thanks for the advice about switching off from the news.  I think that would do me good!

never give up

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Ok so your timeframe is long which means you shouldnít really be too worried about valuations. You donít need the money imminently.

I would question if you are completely ok with being 100% equities given the nature of the question. Being 80:20 would allow you to naturally buy the dips through rebalancing and would be a more optimal way of achieving this than holding cash back.

If you want to remain at 100% equities then just keep buying and ignore the news :-)

vand

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I agree that we are very late into this expansionary phase, and the next bear market could hurt very badly for those too exposed. Now is not the time to be chasing the markets and making up for missing out on the last decade.

Carefully considering your Asset Allocation is the best and arguably only defence you have against bear markets. This may include holding cash and diversifying into other assets classes such as bonds, commodities and REITS.

Being "100% equities right up to FI" suggest to me that you haven't given enough consideration to asset allocation. Smart investing is about much more than just chasing the highest growth, it is about understanding the complex and non-linear relationship between risk and reward.

Too often I read investors who are all FOMO but also say "if it falls then great, I get to buy more and cheaper"... and then when it actually does fall then do the opposite, get fed up of their underwater "investment" and end up selling for a loss and jumping onto the next investment de jour.
« Last Edit: June 18, 2019, 04:08:43 AM by vand »

FireSeekerLondon

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Thanks both for your replies.  You have definitely given me some things to think about in terms of my asset allocation.  It's clear I need to give it further attention, which I haven't up until now.  Vand, I wonder if you would recommend resources which might give me a better understanding of how to even things out a little so that a crash doesn't hurt too much.  Is there a particular book you would recommend for example?  I'm still fairly new to investing like this (in index trackers as opposed to individual stocks), and it is only now that I'm beginning to build up what to me is a fairly sizeable amount, which of course means the dips have a bigger effect on on the overall value.

I don't think I would sell even if the market dropped, but I know it's not always possible to predict what one will do in the future.  I've certainly done stupid things before :)

RWD

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1/2013  [SP500 = 1462]
https://forum.mrmoneymustache.com/investor-alley/is-now-a-bad-time-to-invest-in-stock-index-funds/
5/2013  [1583]
https://forum.mrmoneymustache.com/investor-alley/starting-today!/
https://forum.mrmoneymustache.com/investor-alley/$80k-sitting-in-cash-bc-scared-of-high-flying-stock-mkt-punch-me/
10/2013  [1695]
https://forum.mrmoneymustache.com/investor-alley/stock-market-expensive-now-alternatives/
5/2014  [1884]
https://forum.mrmoneymustache.com/investor-alley/stock-market-is-high-am-i-too-late/
https://forum.mrmoneymustache.com/investor-alley/is-the-stock-market-too-expensive-to-get-back-in/
7/2014  [1973]
https://forum.mrmoneymustache.com/investor-alley/current-market-has-me-scared-to-invest/
9/2014  [2002]
https://forum.mrmoneymustache.com/investor-alley/is-it-a-good-time-to-invest-new-money/
10/2014  [1946]
https://forum.mrmoneymustache.com/ask-a-mustachian/stock-market-would-you-buy-now-or-wait/
1/2015  [2058]
https://forum.mrmoneymustache.com/investor-alley/stock-market-should-i-be-concerned/
3/2015  [2117]
https://forum.mrmoneymustache.com/investor-alley/talk-me-out-of-timing-the-australian-market/
12/2015  [2103]
https://forum.mrmoneymustache.com/ask-a-mustachian/where-to-put-a-large-windfall-with-stock-market-near-all-time-highs/
1/2016  [2013]
https://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-(or-push-me-off)-please!/
2/2017  [2280]
https://forum.mrmoneymustache.com/investor-alley/does-anyone-think-we-are-in-a-bubble/
4/2017  [2359]
https://forum.mrmoneymustache.com/investor-alley/top-is-in/
6/2017  [2430]
https://forum.mrmoneymustache.com/continue-the-blog-conversation/recession-coming/
8/2017  [2476]
https://forum.mrmoneymustache.com/investor-alley/getting-scared-of-stock-market/
1/2018  [2696]
https://forum.mrmoneymustache.com/investor-alley/nervous-about-the-market/
3/2018  [2678]
https://forum.mrmoneymustache.com/investor-alley/when-would-you-get-back-in/
5/2018  [2655]
https://forum.mrmoneymustache.com/investor-alley/investing-in-a-bull-market/
6/2018  [2735]
https://forum.mrmoneymustache.com/investor-alley/moving-to-cash-market-timing-can%27t-believe-it/
10/2018  [2925]
https://forum.mrmoneymustache.com/welcome-to-the-forum/sell-index-funds-now-for-down-payment-during-recession/
2/2019  [2707]
https://forum.mrmoneymustache.com/investor-alley/welp-i'm-going-to-take-a-stab-at-timing-the-market/
4/2019  [2867]
https://forum.mrmoneymustache.com/investor-alley/buy-vtsax-now-while-its-this-high-or-wait-till-a-drop/
https://forum.mrmoneymustache.com/investor-alley/how-concerned-are-you-about-the-everything-bubble/
5/2019  [2924]
https://forum.mrmoneymustache.com/ask-a-mustachian/scared-of-investing-in-the-stock-market-now/
6/2019  [2890]
https://forum.mrmoneymustache.com/uk-tax-discussion/global-index-tracker-is-so-high!-do-i-just-keep-putting-my-money-into-it-anyway/

Miscellaneous
https://forum.mrmoneymustache.com/investor-alley/%27but-right-now-the-market-is-at-an-all-time-high-%27/
https://forum.mrmoneymustache.com/investor-alley/the-great-market-crash-of-2016!/
https://forum.mrmoneymustache.com/investor-alley/how-to-deal-with-losing-$117k-in-stock-market/
https://forum.mrmoneymustache.com/investor-alley/anyone-else-feeling-depressed-about-global-equities-10-year-outlook/
https://forum.mrmoneymustache.com/investor-alley/stocks-will-only-return-4-annually-for-next-decade-john-bogle/

frugledoc

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Iím a bit weird. Crashes donít bother me at all but missing out on gains does.  Iím happy with 100% equities.  For tax efficiency I also have some money in high interest P2P which is even more volatile than equities.

At the moment as soon as I have 20k I buy a lump of vanguard all world. Currently have 800k in VWRL so a 50% crash would take me down to 400k which Iím fine with.  I would definitely keep accumulating no matter what the market condititions.

never give up

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Yes frugledoc and I imagine that you would never ever start a post with the title of this one. You have found an asset allocation that you are completely comfortable with in good market conditions and bad, which is great. However I fear the OP, by the very nature of starting this thread isnít comfortable being 100% stocks. Your scenario you pose is a good one. If the OP imagines their NW halved how would they feel about it? If it makes them feel a bit queasy they should probably add some bonds to the mix, or read some of the posts RWD has linked to and get to the same place of comfort you have.

ketchup

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1/2013  [SP500 = 1462]
https://forum.mrmoneymustache.com/investor-alley/is-now-a-bad-time-to-invest-in-stock-index-funds/
5/2013  [1583]
https://forum.mrmoneymustache.com/investor-alley/starting-today!/
https://forum.mrmoneymustache.com/investor-alley/$80k-sitting-in-cash-bc-scared-of-high-flying-stock-mkt-punch-me/
10/2013  [1695]
https://forum.mrmoneymustache.com/investor-alley/stock-market-expensive-now-alternatives/
5/2014  [1884]
https://forum.mrmoneymustache.com/investor-alley/stock-market-is-high-am-i-too-late/
https://forum.mrmoneymustache.com/investor-alley/is-the-stock-market-too-expensive-to-get-back-in/
7/2014  [1973]
https://forum.mrmoneymustache.com/investor-alley/current-market-has-me-scared-to-invest/
9/2014  [2002]
https://forum.mrmoneymustache.com/investor-alley/is-it-a-good-time-to-invest-new-money/
10/2014  [1946]
https://forum.mrmoneymustache.com/ask-a-mustachian/stock-market-would-you-buy-now-or-wait/
1/2015  [2058]
https://forum.mrmoneymustache.com/investor-alley/stock-market-should-i-be-concerned/
3/2015  [2117]
https://forum.mrmoneymustache.com/investor-alley/talk-me-out-of-timing-the-australian-market/
12/2015  [2103]
https://forum.mrmoneymustache.com/ask-a-mustachian/where-to-put-a-large-windfall-with-stock-market-near-all-time-highs/
1/2016  [2013]
https://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-(or-push-me-off)-please!/
2/2017  [2280]
https://forum.mrmoneymustache.com/investor-alley/does-anyone-think-we-are-in-a-bubble/
4/2017  [2359]
https://forum.mrmoneymustache.com/investor-alley/top-is-in/
6/2017  [2430]
https://forum.mrmoneymustache.com/continue-the-blog-conversation/recession-coming/
8/2017  [2476]
https://forum.mrmoneymustache.com/investor-alley/getting-scared-of-stock-market/
1/2018  [2696]
https://forum.mrmoneymustache.com/investor-alley/nervous-about-the-market/
3/2018  [2678]
https://forum.mrmoneymustache.com/investor-alley/when-would-you-get-back-in/
5/2018  [2655]
https://forum.mrmoneymustache.com/investor-alley/investing-in-a-bull-market/
6/2018  [2735]
https://forum.mrmoneymustache.com/investor-alley/moving-to-cash-market-timing-can%27t-believe-it/
10/2018  [2925]
https://forum.mrmoneymustache.com/welcome-to-the-forum/sell-index-funds-now-for-down-payment-during-recession/
2/2019  [2707]
https://forum.mrmoneymustache.com/investor-alley/welp-i'm-going-to-take-a-stab-at-timing-the-market/
4/2019  [2867]
https://forum.mrmoneymustache.com/investor-alley/buy-vtsax-now-while-its-this-high-or-wait-till-a-drop/
https://forum.mrmoneymustache.com/investor-alley/how-concerned-are-you-about-the-everything-bubble/
5/2019  [2924]
https://forum.mrmoneymustache.com/ask-a-mustachian/scared-of-investing-in-the-stock-market-now/
6/2019  [2890]
https://forum.mrmoneymustache.com/uk-tax-discussion/global-index-tracker-is-so-high!-do-i-just-keep-putting-my-money-into-it-anyway/

Miscellaneous
https://forum.mrmoneymustache.com/investor-alley/%27but-right-now-the-market-is-at-an-all-time-high-%27/
https://forum.mrmoneymustache.com/investor-alley/the-great-market-crash-of-2016!/
https://forum.mrmoneymustache.com/investor-alley/how-to-deal-with-losing-$117k-in-stock-market/
https://forum.mrmoneymustache.com/investor-alley/anyone-else-feeling-depressed-about-global-equities-10-year-outlook/
https://forum.mrmoneymustache.com/investor-alley/stocks-will-only-return-4-annually-for-next-decade-john-bogle/
Are you saying that top is in?

FireSeekerLondon

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I suppose what I would find most annoying is missing an opportunity to buy more if/when the market drops, because I had already put all my cash into the fund at the higher level.  I guess that doesn't really matter if, through dollar cost averaging, I still get to pick up some shares in the fund at the lower value(s).  I think I will carry on for the moment just investing what I can every month, whilst educating myself a little more about how to diversify my asset allocation to see if I would feel more comfortable about doing that.  As long as I'm working and earning it's all academic anyway. 

Frugal doc I envy you your calmness.  Are you that calm in life generally?  I'm something of an anxious over-thinker so it's all relative and I don't think I'm more anxious about my investments than about anything else.  That's just how my brain is :)

ysette9

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Personally I find a combo of 1) not looking very frequently and 2) self education on safe withdrawal rates helps me stay calm. Iíve done a fair amount of reading and also done a lot of simulations of our situation with tools like cFIREsim. I think the more you have an intuitive feeling for success rate probabilities the more confidence you can have that the long term picture will be good, even if the immediate path in front of us gets bumpy.

vand

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Thanks both for your replies.  You have definitely given me some things to think about in terms of my asset allocation.  It's clear I need to give it further attention, which I haven't up until now. Vand, I wonder if you would recommend resources which might give me a better understanding of how to even things out a little so that a crash doesn't hurt too much. Is there a particular book you would recommend for example?  I'm still fairly new to investing like this (in index trackers as opposed to individual stocks), and it is only now that I'm beginning to build up what to me is a fairly sizeable amount, which of course means the dips have a bigger effect on on the overall value.

I don't think I would sell even if the market dropped, but I know it's not always possible to predict what one will do in the future.  I've certainly done stupid things before :)

https://forum.mrmoneymustache.com/investor-alley/portfolio-charts-the-golden-butterfly/

If I could recommend people only read one thread on MMM I would point them to this one.

frugledoc

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I suppose what I would find most annoying is missing an opportunity to buy more if/when the market drops, because I had already put all my cash into the fund at the higher level.  I guess that doesn't really matter if, through dollar cost averaging, I still get to pick up some shares in the fund at the lower value(s).  I think I will carry on for the moment just investing what I can every month, whilst educating myself a little more about how to diversify my asset allocation to see if I would feel more comfortable about doing that.  As long as I'm working and earning it's all academic anyway. 

Frugal doc I envy you your calmness.  Are you that calm in life generally?  I'm something of an anxious over-thinker so it's all relative and I don't think I'm more anxious about my investments than about anything else.  That's just how my brain is :)
[/quote

Yes I am a calm person.  My job requires a lot of thinking so I prefer to keep everything else as simple as possible.  To be fair though, it did take me many years to find bogleheads and simplify my portfolio from a horrible mess to a one fund all world etf.

Also, I am 40 and a member of a very good defined benefit pension scheme so that allows me to take a lot of risk.

vand

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Overpaying your mortgage if you have one is also a form of "defensive" investing, although with UK rates so low at the moment it's very low reward, but also almost zero risk.

FireSeekerLondon

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Thanks Vand for the link to the golden butterfly thread, which I will read.

I do occasionally overpay my mortgage but I donít do it so often anymore. For years I overpaid it aggressively (and in hindsight probably neglected my pension) so thereís only £50k left on it and value of the property about £600k. The existence of the mortgage no longer bothers me now that itís at that level. Also, I am very likely to be inheriting some money in the next couple of years that would take care of the mortgage so that thereís no need to remortgage at the end of my cheap fix in 2 years.

londonbanker

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I assume you are talking about VWRL... which is denominated in GBP, but 90% of its underlying assets arenít in GBP. As a result a significant part of the ETF appreciation since 2016 (in addition to a 30% of the underlying assets in local currency), has been driven the by the depreciation of the £ against all other major currency - compounding the growth of VWRL.

If you want to avoid timing the market (youíre most likely to be unlucky over the long term than not), you could always rebalance some of that ETF w a FTSE ETF such as ISF. It has the benefit to lower you FX exposure, lock yourself at a historically low GBP rate and hope for an eventual reversal to mean. And stay in the market. The dividend payout is also much better at around 4%. Also, 70% of the FTSE100 companies revenue are from outside the UK, providing you w an operational FX hedge within that investment vehicle.

Just my 2 cents

daverobev

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I assume you are talking about VWRL... which is denominated in GBP, but 90% of its underlying assets arenít in GBP. As a result a significant part of the ETF appreciation since 2016 (in addition to a 30% of the underlying assets in local currency), has been driven the by the depreciation of the £ against all other major currency - compounding the growth of VWRL.

If you want to avoid timing the market (youíre most likely to be unlucky over the long term than not), you could always rebalance some of that ETF w a FTSE ETF such as ISF. It has the benefit to lower you FX exposure, lock yourself at a historically low GBP rate and hope for an eventual reversal to mean. And stay in the market. The dividend payout is also much better at around 4%. Also, 70% of the FTSE100 companies revenue are from outside the UK, providing you w an operational FX hedge within that investment vehicle.

Just my 2 cents

Thing with the FTSE 100 though, is exactly as you say - most of the money is outside the UK. Just because it's listed in GBP, doesn't mean anything - when the pound drops, the FTSE 100 goes up - and vice versa! You can't have it both ways, both an FX risk reduction AND a hedge.

If you want "true" (ish) UK, then the FTSE 250 is a much 'better' idea.

@OP... there is no 'right answer' to this other than to review your asset allocation for risk tolerance. If you're nervous and concerned about a 30% drop in stocks... you have too much in stocks.

IF the pound goes back up (if Boris Johnson proves to be less idiotic than he seems, say...), then yes all the foreign stuff you hold will go down in value, as will the FTSE 100.

Volatility is good while you're buying, it's true. Don't get me wrong, I'm struggling with all this a little at the moment - I put a chunk back into the markets yesterday because it is no longer needed for me to hold it at cash (nothing to do with markets), but you're damn right I don't feel great about it.

But what can you do? Over the long term, there's nothing better.

Father Dougal

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I assume you are talking about VWRL... which is denominated in GBP, but 90% of its underlying assets arenít in GBP. As a result a significant part of the ETF appreciation since 2016 (in addition to a 30% of the underlying assets in local currency), has been driven the by the depreciation of the £ against all other major currency - compounding the growth of VWRL.

If you want to avoid timing the market (youíre most likely to be unlucky over the long term than not), you could always rebalance some of that ETF w a FTSE ETF such as ISF. It has the benefit to lower you FX exposure, lock yourself at a historically low GBP rate and hope for an eventual reversal to mean. And stay in the market. The dividend payout is also much better at around 4%. Also, 70% of the FTSE100 companies revenue are from outside the UK, providing you w an operational FX hedge within that investment vehicle.

Just my 2 cents

Thing with the FTSE 100 though, is exactly as you say - most of the money is outside the UK. Just because it's listed in GBP, doesn't mean anything - when the pound drops, the FTSE 100 goes up - and vice versa! You can't have it both ways, both an FX risk reduction AND a hedge.

If you want "true" (ish) UK, then the FTSE 250 is a much 'better' idea.

@OP... there is no 'right answer' to this other than to review your asset allocation for risk tolerance. If you're nervous and concerned about a 30% drop in stocks... you have too much in stocks.

IF the pound goes back up (if Boris Johnson proves to be less idiotic than he seems, say...), then yes all the foreign stuff you hold will go down in value, as will the FTSE 100.


It's good to hear from a fellow holder of VWRL and (perhaps) ISF. And nice to hear too from some posters with an appreciation of the complications behind all our investments.  And I agree that they have look flattered in GBP terms as the pound has weakened.

One thing on the mid-caps (FTSE 250) - there is about 50% of revenue coming from overseas, so even that would not be a particularly pure UK investment. But then a pure UK investment would ignore that fact that a lot of an individual's costs are going to be dependent on the exchange rate with foreign currency, so it makes sense to have some of your investment earnings in those currencies.

The foreign currency issue is a complicated one. Economies are so interrelated now, that I think it is a bit of a red herring as far as equities are concerned. As your living costs are going to be related to the strength or weakness of your home currency (after all, commodities, such as oil, are usually priced in dollars), there are all sorts of "natural" hedges going on that are too tricky to really work out. Perhaps a bigger risk is sitting with a large cash position in pounds if the currency markets get spooked by Brexit (as has, indeed, happened) - but if the "value" of your pounds has dropped by 20% it is mostly invisible to the average person in the street, as the number in your savings account is the same!

Actually a bigger concern to me is political risk - that's what makes VWRL attractive, even if it is 50% US. If the UK gets a Corbyn-led government, he's floating the idea of seizing 10% of every UK-listed company (not to mention nationalising industries). That's going to lead to an avalanche of FTSE100 delistings faster than you can say "Karl Marx". Now what's that going to do to a FTSE 100 tracker?

For the OP, my thought is firstly decide what your objective is. If you know where you are trying to get to, it might be more obvious what you should do. (Hmm, maybe I should do that myself...)

vand

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I do occasionally overpay my mortgage but I donít do it so often anymore. For years I overpaid it aggressively (and in hindsight probably neglected my pension) so thereís only £50k left on it and value of the property about £600k. The existence of the mortgage no longer bothers me now that itís at that level. Also, I am very likely to be inheriting some money in the next couple of years that would take care of the mortgage so that thereís no need to remortgage at the end of my cheap fix in 2 years.

Yeah, that's what I did. I aggressively overpaid my mortgage and paid it off in under 8 years... In hindsight, I perhaps should have contributed more towards my pension to take advantage of the tax breaks, although it does feel nice to be completely mortgage free (for now.. we are likely to be trading up in a few years).

Going back to Asset Allocation.. I just think this is sooo important. It's really the only thing you have control of. You can't influence the rate of return of any thing you buy or don't buy, and you can't time the market with any degree of success... the only thing you can really do control is how much of everything you hold to manage your risk.

Here is a really good series which I found on risk adjusted returns:

https://www.youtube.com/watch?v=QI8nR7VsLes (part 1)

I found one of the points in in part 3 (Drawdown) particularly insightful:
https://www.youtube.com/watch?v=gMDVuRE3EhU

Why is drawdown so important?

Because people's pain tolerance and thus belief in the entire strategy are not correlated in a linear fashion with maximum drawdown of a portfolio. While almost all of us can tolerate a small drawdown, say 20% and not be scared out, if you double this to 40% then the number of investors abandoning the strategy more than doubles, and by the time you are looking at >50% meltdowns virtually everyone has hit the panic button and abandoned the strategy.

Moving this back to asset allocation, you can use the tools of Modern Portfolio Theory to construct a portfolio mix with much reduced volatility in trade off for slightly (or not so slightly) reduction in expected return. For most investors it is a pretty smart tradeoff to be considering.